“Exclusion for interests in FIFs resident in Australia

• “(2) Subsection (1)(b)(iv) does not apply if the person's interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,—

  • “(a)  meets the requirements of section EX 35(b)(i) to (iii) (Exemption for interest in FIF resident in Australia); and

  • “(b) does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).”

• “(bb) the person is not a portfolio investment entity; and”.

• “(v) the exemption in section EX 35 (Exemption for interest in FIF resident in Australia):”.

• “(xv) an exemption given by sections EX 50, EX 18A(2)(b)(i), and EX 21B (which relate to the attributable FIF income method and FIFs corresponding to non-attributing active CFCs); and”.

• “(d) if the person is a natural person and not acting as a trustee,—

  • “(i) the total cost, calculated under section EX 68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000:

  • “(ii) the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:

  • “(iii) the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year when the person is a New Zealand resident; and

• “(e) if the person is acting as trustee of a trust that meets the requirements of subsection (5),—

  • “(i) the total cost, calculated under section EX 68, of attributing interests in FIFs that the person holds at any time in the year is more than $50,000:

  • “(ii) the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:

  • “(iii) the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year; and”.

“Non-application to certain dividends

• “(3) This section does not apply to a dividend—

  • “(a) derived by a portfolio investment entity:

  • “(b) excluded by section CD 36(2) (Foreign investment fund income) from the effect of section CD 36(1).”

• “(bb) the person is not a portfolio investment entity; and”.

• “(v) the exemption in section EX 35 (Exemption for interest in FIF resident in Australia):”.

• “(xv) an exemption given by sections EX 50, EX 18A(2)(b)(i), and EX 21B (which relate to the attributable FIF income method and FIFs corresponding to non-attributing active CFCs); and”.

• “(d) if the person is a natural person and not acting as a trustee,—

  • “(i) the total cost, calculated under section EX 68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000:

  • “(ii) the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:

  • “(iii) the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year when the person is a New Zealand resident; and

• “(e) if the person is acting as trustee of a trust that meets the requirements of subsection (4),—

  • “(i) the total cost, calculated under section EX 68, of attributing interests in FIFs that the person holds at any time in the year is more than $50,000:

  • “(ii) the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:

  • “(iii) the person has, in a return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year; and”.

“EX 14 Attribution: 10% threshold, not PIE

• “Persons with attributed CFC income or loss

  “(1) A person has attributed CFC income or loss from a CFC only if the person—

  • “(a) has an income interest in the CFC of 10% or more for the relevant accounting period; and

  • “(b) is not a portfolio investment entity.

  “Portfolio investment entity

  “(2) A portfolio investment entity that would have attributed CFC income or loss from a CFC in the absence of subsection (1)(b) has FIF income or loss from the CFC under the FIF rules.

  “Defined in this Act: accounting period, attributed CFC income, CFC, FIF income, FIF rules, income interest, loss, PIE, portfolio investment entity”.

• “(ii) owned by the CFC or by a CFC or FIF that is associated with the CFC; and”.

• “(o) a dividend that is excluded by section CD 36(2) (Foreign investment fund income) from the effect of section CD 36(1).”

• “(i) paid to the CFC by a person not associated with the CFC under section YB 2, or by a CFC associated with the CFC under section YB 2 that has received a royalty payment from such a person or a royalty payment arising from such a royalty payment; and

• “(ii) from property owned by a New Zealand resident who is resident in no other country under all applicable double tax agreements; and

• “(iii) from property licensed to the CFC, or to a CFC associated with the CFC under section YB 2, (the licensee) by the New Zealand resident for an arm's length amount determined under section GC 13 for the arrangement between the licensee and the New Zealand resident.”

• “(a) from land in a country or territory with which the CFC has links that meet the requirements of subsection (16):

• “(a) from land in a country or territory with which the CFC has a taxed CFC connection:”.

• “(a) the service is the transmission, emission, or reception of information between New Zealand and a country or territory with which the CFC has links that meet the requirements of subsection (16)a taxed CFC connection; and”.

• “(c) the service is performed by a person, other than the CFC, who—

  • “(i) is resident in New Zealand, and is resident in no other country under all applicable double tax agreements:

  • “(ii) has a fixed establishment in New Zealand that is a permanent establishment under all applicable double tax agreements; and

• “(d) the service is performed by the person as part of a business in New Zealand of providing telecommunication services in New Zealand—

  • “(i) carried on through the person's fixed establishment, if the person is not resident in New Zealand; and

  • “(ii) from which the person derives assessable income of more than $5,000,000 per annum.”

“Required relationship between CFC and country or territory

• “(16) The relationship between a CFC and a country or territory (the host country) meets the requirements of this subsection if—

  • “(a) the CFC is resident in the host country under section YD 3 (Country of residence of foreign countries); and

  • “(b) there is no other country or territory for which the CFC is—

    • “(i) a resident under the domestic law of the country or territory:

    • “(ii) liable to income tax because of the CFC's domicile, residence, place of incorporation, or centre of management:

    • “(iii) treated as a resident under an agreement with the host country that would be a double tax agreement if it were an agreement between New Zealand and the host country; and

  • “(c) the CFC has no presence outside the host country that is a fixed establishment or permanent establishment under an agreement, between another country or territory and the host country, that would be a double tax agreement if it were between New Zealand and the host country; and

  • “(d) the CFC is liable in the host country to tax on its income because of the CFC's domicile, residence, place of incorporation, or centre of management, or there is another CFC (the parent CFC) that—

    • “(i) wholly owns the CFC under the laws of New Zealand and the host country; and

    • “(ii) has a relationship with the host country meeting the requirements of paragraphs (a) to (c); and

    • “(iii) because of the parent CFC's domicile, residence, place of incorporation, or centre of management, is liable in the host country to tax on its income in the same period that the CFC would be liable on its income if it were a company liable for tax.”

• “(ii) that are distributions relating to fixed-rate foreign equity or deductible foreign equity distributions of the CFC and are paid by the CFC to a company resident in New Zealand, to another CFC, or to a FIF for which the interest holder uses the attributable FIF income method:”.

• “(i) under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies) or to a FIF for which the interest holder uses the attributable FIF income method and that is associated with the CFC under section YB 2; and”.

• “(i) held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method; and”.

• “(b) fixed-rate foreign equity that is issued by the CFC and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method:

• “(c) shares issued by the CFC in relation to which the CFC makes deductible foreign equity distributions to a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method.”

• “(i) under which the CFC provides funds to another CFC that is associated with the CFC under section YB 2 (Two companies) or to a FIF for which the interest holder uses the attributable FIF income method and that is associated with the CFC under section YB 2; and”.

• “(10) The formula for the CFC's fraction is—”

  	attributable foreign company assets
  	total foreign company assets.

“Attributable foreign company assets

• “(12) Attributable foreign company assets is the total value of assets, consolidated under generally accepted accounting practice for the accounting period, of all the interest holder's CFCs and of all the FIFs for which the interest holder uses the attributable FIF income method, to the extent to which each asset is—

  • “(a) used for the purpose of deriving an attributable CFC amount or an amount that is included in net attributable FIF income or loss; and

  • “(b) not used for the purpose of deriving an amount other than an amount referred to in paragraph (a).

“Total foreign company assets

• “(13) Total foreign company assets is the total value of assets, consolidated under generally accepted accounting practice for the accounting period, of all the interest holder's CFCs and of all the FIFs for which the interest holder uses the attributable FIF income method.”

• “(b) fixed-rate foreign equity issued by a member of the group and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method:

• “(c) equity interests issued by a member of the group in relation to which the member makes deductible foreign equity distributions to a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method.”

• “(31) Subsection (30) does not apply if another party to the lease is a New Zealand resident, a CFC, or a FIF for which the taxpayer uses the attributable FIF income method.”

“Single test for each CFC

• “(4) In determining whether CFCs are non-attributing active CFCs for an accounting period under a test in section EX 21D or EX 21E, an interest holder must not use the result of a test applied to a test group that includes a CFC if the person uses for the period a result of the same or a different test applied to the CFC, alone or as part of a different test group.”

• “(i) fraudulent activity by the interest holder, the CFC, a company in the CFC's test group, or the auditor:”.

• “(a) each subject to the laws of the same country or territory and having a relationship with the country or territory meeting the requirements of subsection (10); and

• “(a) each subject to the laws of the same country or territory and having a taxed CFC connection with the country or territory; and”.

“Required relationship between CFC and country or territory

• “(10) The relationship between a CFC and a country or territory (the host country) meets the requirements of this subsection if—

  • “(a) the CFC is resident in the host country under section YD 3 (Country of residence of foreign countries); and

  • “(b) there is no other country or territory for which the CFC is—

    • “(i) a resident under the domestic law of the country or territory:

    • “(ii) liable to income tax because of the CFC's domicile, residence, place of incorporation, or centre of management:

    • “(iii) treated as a resident under an agreement with the host country that would be a double tax agreement if it were an agreement between New Zealand and the host country; and

  • “(c) the CFC has no presence outside the host country that is a fixed establishment or permanent establishment under an agreement, between another country or territory and the host country, that would be a double tax agreement if it were between New Zealand and the host country; and

  • “(d) the CFC is liable in the host country to tax on its income because of the CFC's domicile, residence, place of incorporation, or centre of management, or there is another CFC (the parent CFC) that—

    • “(i) wholly owns the CFC under the laws of New Zealand and the host country; and

    • “(ii) has a relationship with the host country meeting the requirements of paragraphs (a) to (c); and

    • “(iii) because of the parent CFC's domicile, residence, place of incorporation, or centre of management, is liable in the host country to tax on its income in the same period that the CFC would be liable on its income if it were a company liable for tax.”

• “(b) each company is subject to the laws of the same country or territory and has a relationship with the country or territory meeting the requirements of subsection (14); and

• “(b) each company is subject to the laws of the same country or territory and has a taxed CFC connection with the country or territory; and”.

• “(cb) gain or loss from a financial asset that is a financial arrangement or agreement referred to in section EX 20B(12):”.

• “(ab) income from rent:”.

“Required relationship between CFC and country or territory

• “(14) The relationship between a CFC and a country or territory (the host country) meets the requirements of this subsection if—

  • “(a) the CFC is resident in the host country under section YD 3 (Country of residence of foreign countries); and

  • “(b) there is no other country or territory for which the CFC is—

    • “(i) a resident under the domestic law of the country or territory:

    • “(ii) liable to income tax because of the CFC's domicile, residence, place of incorporation, or centre of management:

    • “(iii) treated as a resident under an agreement with the host country that would be a double tax agreement if it were an agreement between New Zealand and the host country; and

  • “(c) the CFC has no presence outside the host country that is a fixed establishment or permanent establishment under an agreement, between another country or territory and the host country, that would be a double tax agreement if it were between New Zealand and the host country; and

  • “(d) the CFC is liable in the host country to tax on its income because of the CFC's domicile, residence, place of incorporation, or centre of management, or there is another CFC (the parent CFC) that—

    • “(i) wholly owns the CFC under the laws of New Zealand and the host country; and

    • “(ii) has a relationship with the host country meeting the requirements of paragraphs (a) to (c); and

    • “(iii) because of the parent CFC's domicile, residence, place of incorporation, or centre of management, is liable in the host country to tax on its income in the same period that the CFC would be liable on its income if it were a company liable for tax.”

• “(c) the person is not a portfolio investment entity.”

“EX 35 Exemption for interest in FIF resident in Australia

• A person's rights in a FIF in an income year are not an attributing interest if,—

  • “(a) at all times in the year, the rights are a direct income interest of 10% or more; and

  • “(b) at all times in the year, the FIF is—

    • “(i) resident in Australia; and

    • “(ii) under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and

    • “(iii) treated as being resident in Australia under all agreements between the government of Australia and the governments of other territories that would be a double tax agreement if between the government of New Zealand and the government of the other country or territory; and

  • “(c) the FIF's liability for income tax for the income year is not reduced by—

    • “(i) an exemption from income tax for income derived from business activities carried on outside Australia:

    • “(ii) a special allowance, relief, or exemption with respect to offshore banking units; and

  • “(d) at all times in the year, the person is none of the following:

    • “(i) a portfolio investment entity:

    • “(ii) a superannuation scheme:

    • “(iii) a unit trust:

    • “(iv) a life insurer:

    • “(v) a group investment fund.

  “Defined in this Act: attributing interest, direct income interest, double tax agreement, FIF, group investment fund, income tax, income year, life insurer, portfolio investment entity, resident in Australia, superannuation scheme, unit trust”.

“Requirements for accrual of rights

• “(2) The rights must have accrued—

  • “(a) when the person is not a New Zealand resident:

  • “(b) during a period for which the person is a New Zealand resident that—

    • “(i) begins when the person becomes a New Zealand resident; and

    • “(ii) ends before the first day of the fifth income year following the income year in which the person becomes a New Zealand resident:

  • “(c) as a result of rights that satisfy paragraph (a) or (b).”

• “(b) the attributable FIF income method; or”.

“Attributable FIF income method

• “(3) A person may use the attributable FIF income method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if,—

  • “(a) at all times in the accounting period,—

    • “(i) the FIF is a company; and

    • “(ii) the person is not a portfolio investment entity; and

    • “(iii) the interest is a direct income interest of 10% or more; and

  • “(b) the person can provide to the Commissioner, if requested, sufficient information to enable the Commissioner to check the calculations required by section EX 50.

• “(3) A person may use the attributable FIF income method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if the person can provide to the Commissioner, if requested, sufficient information to enable the Commissioner to check the calculations required by section EX 50 and,—

  • “(a) at all times in the accounting period,—

    • “(i) the FIF is a company; and

    • “(ii) the item ‘income interest’ given by section EX 50(4) for the person and the FIF is 10% or more; and

    • “(iii) the person is not a portfolio investment entity:

  • “(b) the FIF is a CFC and the person cannot determine the market value of the attributing interest at the beginning of the accounting period except by independent valuation and neither the person nor a person who has a direct income interest of 10% or more in the FIF is—

    • “(i) a listed company:

    • “(ii) a group investment fund:

    • “(iii) a portfolio investment entity:

    • “(iv) a superannuation scheme:

    • “(v) a unit trust:

    • “(vi) a trustee of a trust with a beneficiary described in 1 or more of subparagraphs (i) to (iv).”

“Deemed rate of return method

• “(5) A person may use the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF only if the person is required by section EX 47 to use the deemed rate of return method for the interest.”

“Default choice

• “(2) The person is treated as having chosen to use, for the period,—

  • “(a) the fair dividend rate method if it is practical to use it; and

  • “(b) the cost method if it is not practical to use the fair dividend rate method.”

“Net attributable FIF income or loss

• “(3) Net attributable FIF income or loss is the amount for the FIF and the accounting period calculated by applying—

  • “(a) sections EX 18A to EX 21E, EX 24, and EX 25, as modified by subsection (4B), as if the FIF were a CFC for which the person were calculating the net attributable CFC income or loss for the accounting period; and

  • “(b) subsections (5) and (6).

• “(3) Net attributable FIF income or loss is the amount for the FIF and the accounting period found by applying—

  • “(a) sections EX 18A to EX 21E, EX 24, and EX 25, as modified by subsection (4B), as if the FIF were a CFC and the person's attributing interests in the FIF were income interests in the CFC; and

  • “(b) subsections (5) and (6).”

“Modifications to method of calculating net attributable CFC income or loss

• “(4B) The net attributable FIF income or loss of a FIF is calculated as if—

  • “(a) section EX 20B(5)(c)(i) required that the royalty be paid by a foreign company meeting the requirements of section EX 50(4C):

  • “(ab) section EX 20B(5)(d) were omitted:

  • “(b) section EX 20B(7)(c) required that the rent be paid by a foreign company meeting the requirements of section EX 50(4C):

  • “(c) section EX 20B(12)(a) required that the financial arrangement or agreement be an agreement by the CFC to lend money to a foreign company meeting the requirements of section EX 50(4C):

  • “(cb) section EX 21C(2)(a) required—

    • “(i) the interest holder or other person to have accounts that include the accounts of the CFC, including by proportionate consolidation under NZIAS 31:

    • “(ii) the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the CFC under NZIAS 39, or include amounts recognised under the equity method in NZIAS 28 or NZIAS 31, and the CFC to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:

  • “(cc) section EX 21C(3)(a) required—

    • “(i) the interest holder or other person to have accounts that include the accounts of the members of the test group, including by proportionate consolidation under NZIAS 31:

    • “(ii) the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the members under NZIAS 39, or include amounts recognised under the equity method in NZIAS 28 or NZIAS 31, and the members to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:

  • “(cd) section EX 21C(4)(a) required—

    • “(i) the interest holder or other person to have accounts that include the accounts of the CFC, including by proportionate consolidation under the IFRSE corresponding to NZIAS 31:

    • “(ii) the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the CFC under the IFRSE corresponding to NZIAS 39, or include amounts recognised under the equity method in the IFRSE corresponding to NZIAS 28 or NZIAS 31, and the CFC to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:

  • “(ce) section EX 21C(5)(a) required—

    • “(i) the interest holder or other person to have accounts that include the accounts of the members of the test group, including by proportionate consolidation under the IFRSE corresponding to NZIAS 31:

    • “(ii) the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the members under the IFRSE corresponding to NZIAS 39, or include amounts recognised under the equity method in the IFRSE corresponding to NZIAS 28 or NZIAS 31, and the members to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:

  • “(d) section EX 21D(1)(a) required that none of the other companies in the test group be a CFC:

  • “(e) section EX 21D(1)(b) required that the CFC hold a voting interest of more than 50% in each of the other companies in the test group:

  • “(f) section EX 21D(3)(b) were omitted:

  • “(g) section EX 21E(2)(b) required that none of the other companies in the test group be a CFC:

  • “(h) section EX 21E(2)(c) required that the CFC hold a voting interest of more than 50% in each of the other companies in the test group:

  • “(i) section EX 21E(2)(d) were omitted:

  • “(j) section EX 21E(4)(c) were omitted:

  • “(k) section EX 21E(9)(a) required that an amount in the category be a dividend that is not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c) and is not excluded by section EX 50(7B)(b) from being additional FIF income or loss under section EX 50(6).

  • “(k) the references in section EX 21E(7)(f) and (g) to ‘NZIAS 39’ were to ‘whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles’:

  • “(l) section EX 21E(9)(a) required that an amount in the category be a dividend that is—

    • “(i) not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c); and

    • “(ii) paid by a company other than 1 from which the person does not have additional FIF income or loss under subsection (6) because of the application of subsection (7B)(b):

  • “(m) the references in section EX 21E(10)(c) and (d) to ‘NZIAS 39’ were to ‘whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles’:

  • “(n) the references in section EX 21E(12)(d) to ‘NZIAS 39’ were to ‘whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles’:

  • “(o) the reference in section EX 21E(12)(g) to ‘NZIAS 32’ were a reference to ‘whichever is appropriate of NZIAS 32, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles’.

“Requirements for foreign company making payments to FIF

• “(4C) A foreign company making payments to a FIF meets the requirements of this subsection if—

  • “(a) the foreign company is a non-attributing active CFC under section EX 21B(2) or would be a non-attributing active CFC under section EX 21B(2) if it were a CFC in the absence of sections EX 20B(5)(c)(i), EX 20B(7)(c), and EX 20B(12)(a); and

  • “(a) the person uses the attributable FIF income method for the foreign company; and

  • “(ab) the foreign company, if it were a CFC, would be a non-attributing active CFC under section EX 21B(2) in the absence of section EX 20B(5)(c)(i), (7)(c), and (12)(a); and

  • “(b)  the FIF holds a voting interest of more than 50% in the foreign company; and

  • “(b)  a group of persons holds total voting interests of more than 50% in the FIF and in the foreign company; and

  • “(c) the FIF and the foreign company are resident in the same country (the host country) under section YD 3 (Country of residence of foreign countries); and

  • “(c) the FIF and the foreign company each have a taxed FIF connection with the same country or territory.

  • “(d) there is no other country or territory for which the FIF or the foreign company is—

    • “(i) a resident under the domestic law of the country or territory:

    • “(ii) liable to income tax because of domicile, residence, place of incorporation, or centre of management:

    • “(iii) treated as a resident under an agreement with the host country that would be a double tax agreement if it were an agreement between New Zealand and the host country; and

  • “(e) the FIF and the foreign company each have no presence outside the host country that is a fixed establishment or permanent establishment under an agreement, between another country or territory and the host country, that would be a double tax agreement if it were between New Zealand and the host country; and

  • “(f) the FIF and the foreign company are each liable in the host country to tax on their respective incomes because of their domicile, residence, place of incorporation, or centre of management, or there is a FIF (the parent FIF) that—

    • “(i) wholly owns the FIF or foreign company under the laws of New Zealand and the host country; and

    • “(ii) has a relationship with the host country meeting the requirements of paragraphs (c) to (e); and

    • “(iii) because of the parent FIF's domicile, residence, place of incorporation, or centre of management, is liable in the host country to tax on its income in the same period that the FIF or foreign company would be liable on its income if it were a company liable for tax.”

“Exception to subsection (6)

• “(7B) A person does not have additional FIF income or loss under subsection (6) from a FIF with an interest in a foreign company if—

  • “(a) the foreign company meets the test for a non-attributing active CFC under section EX 21B(2) and the person—

    • “(i) would be able to use the attributable FIF income method for the foreign company if the person held the FIF's interest in the foreign company:

    • “(ii) is able to include the foreign company in the same test group as the FIF under section EX 21D or EX 21E:

  • “(b) the FIF would meet the test for a non-attributing active CFC under section EX 21B(2)(b) if the following amounts relating to the interest in the foreign company reported in the accounts of the FIF, or in the consolidated accounts of the FIF's test group under section EX 21E, were included in the item ‘added passive’ under section EX 21E(5) and (8) for the FIF or the test group:

    • “(i) amounts recognised in the profit and loss accounts under the equity method under NZIAS 28 or NZIAS 31:

    • “(ii) amounts recognised in the income statement under proportionate consolidation under NZIAS 31:

    • “(iii) dividends and holding gains recognised in the profit and loss accounts under NZIAS 39.

  • “(b) the FIF would meet the test for a non-attributing active CFC under section EX 21B(2)(b) if the following amounts relating to the interest in the foreign company reported in the accounts of the FIF, or in the consolidated accounts of the FIF's test group under section EX 21E, were included in the items added passive and reported revenue under section EX 21E(5), (8), and (10) for the FIF or the test group:

    • “(i) amounts recognised in profit and loss under the equity method under whichever is appropriate of NZIAS 28, NZIAS 31, an equivalent IFRSE, and an equivalent standard or principle in the generally accepted accounting principles in the United States of America:

    • “(ii) amounts recognised in profit or loss under proportionate consolidation under whichever is appropriate of NZIAS 31, an equivalent IFRSE, and an equivalent standard or principle in the generally accepted accounting principles in the United States of America:

    • “(iii) dividends and net fair value changes recognised in profit or loss in relation to investments accounted for under whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or principle in the generally accepted accounting principles in the United States of America:

  • “(c) the interest in the foreign company would be excluded by section EX 35 from being an attributing interest if the interest were held by the person.”

• “(7) Subsection (8) applies to a person who calculates under subsection (1) an amount of FIF loss for an attributing interest in a FIF (the affected interest) that is not a non-ordinary share described in section EX 46(10).”

• “(b) are not, at the beginning of the income year, included in a direct income interest of 10% or more in a FIF that, at the beginning of the year,—

  • “(i) meets the requirements of section EX 35(b)(i) to (iii); and

  • “(ii) does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).”

• “(b) are not, at the beginning of the income year, included in a direct income interest of 10% or more in a FIF that, at the beginning of the year,—

  • “(i) meets the requirements of section EX 35(b)(i) to (iii); and

  • “(ii) does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).”

“Exceptions

• “(5) Despite subsection (4), the CFC's FIF income or loss does not include—

  • “(a) any amount actuarially determined to be attributable to policyholders in the CFC or another company as a result of applying section EX 21(25) and (26) to the CFC:

  • “(b) any amount from an interest that would be excluded under section EX 35 from being an attributing interest if held by the person instead of the CFC.”

“Exclusion for interests in FIFs resident in Australia

• “(1B) Subsection (1)(c) does not apply if the person's interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,—

  • “(a) meets the requirements of section EX 35(b)(i) to (iii); and

  • “(b) does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).”

• “(a) in the case of the accounting profits method,—

  • “(i) section EX 46(2) is repealed:

  • “(ii) before the date of the repeal of section EX 46(2), that section prevents its continued use or it is impossible to obtain enough information to continue to use it:”.

• “(b) in the case of the attributable FIF income method, section EX 46(3) prevents its continued use or it is impossible to obtain enough information to continue to use it:

• “(b) in the case of the attributable FIF income method, section EX 46(3)(a) or (b) prevents its continued use or it is impossible to obtain enough information to continue to use it:”.

• “(c) in the case of the comparative value method,—

  • “(i) section EX 46(6) prevents its continued use:

  • “(ii) it is impossible to find out the end-of-year market value of the interest:”.

• “(e) in the case of the deemed rate of return method, the person is required by section EX 47 to use the comparative value method:”.

• “(g) in the case of the cost method, section EX 46(9) prevents its continued use.”

“Changing to or from the attributable FIF income method

• “(6) A person may make an election under subsection (3) to change to or from the attributable FIF income method if—

  • “(a) they are changing from the branch equivalent method:

  • “(b) this is the first time they have chosen to change to or from the attributable FIF income method for an attributing interest in the FIF, other than under paragraph (a):

  • “(c) subsection (7) allows them to make another election.”

“Change to fair dividend rate method for first income year beginning on or after 1 July 2011

• “(10) A person may change to the fair dividend rate method from the accounting profits method, the branch equivalent method, or the deemed rate of return method in the person's return of income for the first income year beginning on or after 1 July 2011.”

• “(a) from 1 of the 4 cost-based calculation methods (the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method) to the attributable FIF income method; or

• “(b) from a look-through calculation method (the attributable FIF income method, the accounting profits method, or the branch equivalent method) to 1 of the 4 cost-based calculation methods.”

• “(c) for the accounting period in which the change occurs, uses the attributable FIF income method to calculate FIF income or loss from the interest.”

“EX 67B Revaluation of inherited interests in grey list companies

• “When this section applies

  “(1) This section applies when—

  • “(a) a person inherited, before 1 April 2007, an interest in a FIF that was a grey list company when the interest was inherited; and

  • “(b) the cost of the interest for the person is equal to—

    • “(i) the cost of the interest for the person from whom the interest was inherited:

    • “(ii) zero.

  • “(b) the cost of the interest for the person is equal to zero.

  “Treatment as disposal and reacquisition

  “(2) The person is treated as having—

  • “(a) disposed of the interest immediately before this section applied to the person and the interest; and

  • “(b) reacquired the interest as soon as this section applied to the person and the interest; and

  • “(c) received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.

  “Cost of inherited interest for purposes of tax liability

  “(2B) For determining a tax liability of the person arising from the disposal, the cost of the interest for the person at the time of the inheritance is treated as being the lesser of—

  • “(a) the market value of the interest at the time of the inheritance:

  • “(b) the market value of the interest at the time of the disposal.

  “Payment of tax liability arising from revaluation

  “(3) A person who is liable to pay an amount of income tax (the amount of tax) because of a disposal in an income year, and related acquisition, treated as occurring under this section—

  • “(a) may satisfy the liability by paying to the Commissioner—

    • “(i) at least one third of the amount of tax in the income year following the income year in which the disposal is treated as occurring; and

    • “(ii) at least one half of the balance of the amount of tax remaining owing after payment made under subparagraph (i), in the second income year following the income year in which the disposal is treated as occurring; and

    • “(iii) the balance of the amount of tax remaining owing after payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposal is treated as occurring:

  • “(b) is not liable to pay any penalty or interest for which the person would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent to which the inaccuracy or shortfall arises because of the disposals.

  “Defined in this Act: amount, Commissioner, dispose, FIF, grey list company, income tax, income year, market value, pay, provisional tax, tax”.

• “(c) a person cannot obtain enough information to calculate their attributed CFC income or loss or FIF income or loss for a period.”

• “(b) the application of a rate of presumed increase of 10% or more, compounded annually, to the CFC's net attributable CFC income or to the FIF's net attributable FIF income, for a previous period:”.

• “(a) to apportion certain interest expenditure between income derived fromhaving a source in New Zealand and other income for a New Zealand taxpayer who has a disproportionately high level of debt funding in relation to their worldwide interest expenditure and who—

  • “(i) is controlled by a single non-resident:

  • “(ii) is a person (an outbound entity) with an income interest in a CFC or with an interest in a FIF that satisfies the requirements of section EX 35 (Exemption for interest in FIF resident in Australia) or for which the person uses the attributable FIF income method:

  • “(iii) is a New Zealand resident who controls an outbound entity; and”.

• “(e) a company that is resident in New Zealand and has—

  • “(i) an income interest in a CFC:

  • “(ii) an interest in a FIF that satisfies the requirements of section EX 35 (Exemption for interest in FIF resident in Australia):

  • “(iii) an interest in a FIF for which the person uses the attributable FIF income method:”.

• “(ib) an interest in a FIF that satisfies the requirements of section EX 35:

• “(ic) an interest in a FIF for which the person uses the attributable FIF income method:”.

“New Zealand banking group of Crown-owned registered bank

• “(5) If the members of the New Zealand banking group of a registered bank are given by section FE 36B, the interests held by a member of the group for the purposes of subsection (1)(e) and (f) do not include interests held by an associated person who is not a member of the group.”

• “(iii) derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:”.

• “(iii) derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:”.

• “(iii) all FIFs in which the trustee or a member of the trustee's New Zealand group has an interest that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia); and

• “(iv) all FIFs in which the trustee or a member of the trustee's New Zealand group has an interest for which the person uses the attributable FIF income method:”.

• “(ab) the company or person is eligible to choose, and chooses, under subsection (1BB) to use the threshold test in subsection (1D):”.

“Eligibility for optional threshold, apportionment method

• “(1BB) A company or person referred to in subsection (1B) that would otherwise be required to make an apportionment under section FE 6 may choose instead to be subject to the threshold in subsection (1D) and to the apportionment method in section FE 6B only if—

  • “(a) for each of the New Zealand group and the worldwide group, the amount (the adjusted net profit) given by subsection (1BC) is greater than zero; and

  • “(b) for the New Zealand group, the deductions for interest allowed to the group under sections DB 6 to DB 9 (which relate to deductions for interest) exceed the income of the group that is interest; and

  • “(c) for the worldwide group, treating the members as residents for the purposes of this paragraph, the deductions for interest allowed to the group under sections DB 6 to DB 9 exceed the income of the group that is interest; and

  • “(d) for the worldwide group, the amount of the total group debt, calculated for the income year as if for the purposes of determining the group's debt percentage under section FE 12, is equal to or more than 75% of the amount of total group assets, not including goodwill; and

  • “(e) for the worldwide group, the proportion of the total group debt, calculated as for paragraph (d), for which the lender is not associated with the group under subpart YB (Associated persons) is equal to or more than 80%.

“Formula for adjusted net profit

• “(1BC) The adjusted net profit for a group is the amount calculated using the formula—

  net – attributed + net interest + depreciation + amortisation.

“Definition of items in formula

• “(1BD) In the formula in subsection (1BC),—

  • “(a) net is the net profit or loss of the group before tax using generally accepted accounting practice, treating a net loss as a negative amount:

  • “(b) attributed, for the worldwide group, is zero and, for the New Zealand group, is the income—

    • “(i) under generally accepted accounting practice from an interest in a FIF or CFC described in section FE 2(1)(e) to (g); and

    • “(ii) included in the calculation of the item net profit or loss and not included in the calculation of the item net interest:

  • “(c) net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group that is interest:

  • “(c) net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9 from a financial arrangement providing funds to the group, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group from a financial arrangement on arms-length terms providing funds to a person who meets the requirements of section FE 13(3):

  • “(d) depreciation is the depreciation for the group:

  • “(d) depreciation is the depreciation for the group using generally accepted accounting practice:

  • “(e) amortisation is the amortisation for the group.

  • “(e) amortisation is the amortisation for the group using generally accepted accounting practice.”

• “(d) all FIFs in which the natural person or a member of the natural person's New Zealand group has an interest that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia); and

• “(e) all FIFs in which the natural person or a member of the natural person's New Zealand group has an interest for which the natural person or member uses the attributable FIF income method.”

“Elective threshold for excess debt entity

• “(1D) A company or person that chooses to be subject to the threshold test in this subsection must apportion the interest expenditure for the income year under section FE 6B except if the ratio (the interest-income ratio) given by subsection (1E) for the company or person's New Zealand group is equal to or less than the lesser of—

  • “(a) 110% of the interest-income ratio for the company or person's worldwide group:

  • “(b) 50%.

“Formula for group's interest-income ratio

• “(1E) The interest-income ratio for a group is calculated using the formula—

  	net interest
  	adjusted net profit.

“Definition of items in formula

• “(1F) In the formula in subsection (1E),—

  • “(a) net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group that is interest:

  • “(a) net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9 from a financial arrangement providing funds to the group, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group from a financial arrangement on arms-length terms providing funds to a person who meets the requirements of section FE 13(3):

  • “(b) adjusted net profit is the amount given for the group by subsection (1BC).”

“FE 6B Alternative apportionment of interest by some excess debt entities

• “Who this section applies to

  “(1) This section applies to a company or person that is required by section FE 5(1D) to apportion its interest expenditure for an income year under this section.

  “Formula

  “(2) The company or person is treated under section CH 9 (Interest apportionment: excess debt entity) as deriving from New Zealand in the income year an amount of income calculated for the income year using the formula—

  	net interest	×	NZ group ratio – threshold ratio
  			NZ group ratio.

  “Definition of items in formula

  “(3) In the formula—

  • “(a) net interest is the deductions for interest allowed to the company or person under sections DB 6 to DB 9 (which relate to deductions for interest) reduced by the income of the company or person that is interest:

  • “(a) is the deductions for interest allowed to the company or person under sections DB 6 to DB 9 (which relate to deductions for interest) from a financial arrangement providing funds to the company or person, reduced by the income of the company or person from a financial arrangement on arms-length terms providing funds to a person who meets the requirements of section FE 13(3):

  • “(b) NZ group ratio is the interest-income ratio given by section FE 5(1E) for the New Zealand group of the company or person:

  • “(c) threshold ratio is the lesser of—

    • “(i) 50%:

    • “(ii) 110% of the interest-income ratio given by section FE 5(1E) for the worldwide group of the company or person.

  “Defined in this Act: company, deduction, income, income year, interest, New Zealand”.

“FE 12B Calculations for group for test and apportionment using interest-income ratio

• “Application of rules

  “(1) The rules in this section apply to the calculation, for an entity's New Zealand group or worldwide group, of the following amounts:

  • “(a) deductions for interest allowed to the group under sections DB 6 to DB 9 (which relate to deductions for interest), for the purposes of section FE 5(1BB):

  • “(b) the income of the group that is interest, for the purposes of section FE 5(1BB):

  • “(c) the items in the formula for adjusted net profit in section FE 5(1BC):

  • “(d) the items in the formula for interest-income ratio in section FE 5(1E).

  “Generally accepted accounting practice for consolidation

  “(2) An amount calculated under these rules for an entity's group must be calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group income, expenses, transactions, and balances.

  “Non-resident member of New Zealand group

  “(3) If a member of a New Zealand group is not resident in New Zealand, the amounts for the member are not included in a consolidation except to the extent that the amounts relate to—

  • “(a) the carrying on of business in New Zealand through a fixed establishment in New Zealand:

  • “(b) the derivation of income that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.

  “Defined in this Act: business, deduction, double tax agreement, fixed establishment, generally accepted accounting practice, income, interest, New Zealand, New Zealand tax, resident in New Zealand, source in New Zealand”.

• “(b) the derivation of income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.”

• “(a) a non-resident who is not carrying on business through a fixed establishment in New Zealand and derives—

  • “(i) income that does not have a source in New Zealand:

  • “(ii) income with a source in New Zealand, all of which is non-resident passive income or has relief from New Zealand tax available under a double tax agreement; or”.

• “(b) derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.”

• “(ii) the CFC derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:

• “(ii) the CFC or FIF derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:”.

• “(b) derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.”

• “(a) are held by a member or potential member of the group; and”.

• “(ii) no single non-resident who is carrying on business in New Zealand through a fixed establishment in New Zealand or who derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable has an ownership interest in the entity of 50% or more; or”.

• “(iii) not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and”.

• “(iii) not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and”.

• “(iii) deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and”.

• “(iii) deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and”.

• “(iii) deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and”.

• “(iii) deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and”.

• “(b) an interest, in an entity not part of the worldwide group A, that is—

  • “(i) an income interest in a CFC:

  • “(ii) an interest in a FIF that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia):

  • “(iii) an interest in a FIF for which the natural person or trustee uses the attributable FIF income method.”

“FE 36B Identifying members of New Zealand banking group: Crown-owned, no interest apportionment

• “Entities included in group

  “(1) The New Zealand banking group of a registered bank consists of the entities given by this section if—

  • “(a) Her Majesty the Queen in right of New Zealand has a voting interest of 100% in the registered bank; and

  • “(b) in the absence of this paragraph and sections EX 15, FE 2(5), FE 38(b) and (d), and FE 41(1), none of the entities that would be part of the banking group under this section would be a person to whom the interest apportionment rules might apply under section FE 2.

  “Registered bank and person with direct voting interest of 100%

  “(2) The banking group includes—

  • “(a) the registered bank:

  • “(b) a person with a direct voting interest of 100% in the registered bank.

  “Resident member of financial reporting group under Financial Reporting Act 1993

  “(3) A resident person is included in the banking group if the person,—

  • “(a) under the Financial Reporting Act 1993, is a member of the financial reporting group for which the registered bank is the reporting member:

  • “(b) would be a member of the financial reporting group referred to in paragraph (a) but for the relevant materiality thresholds.

  “Defined in this Act: direct voting interest, New Zealand, New Zealand banking group, registered bank, resident”.

• “(b) the purpose of the arrangement is to produce a benefit—

  • “(i) for a New Zealand resident that is not a CTR group member under section YD 9 (Residence of CTR company shareholders) or for a New Zealand resident that is a CTR group member under section YD 9 to the extent that it is treated under that section as resident in New Zealand; and

  • “(ii) under a taxation law; and

  • “(iii) relating to the CTR credits.”